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IAI Actuarial Core Principles · Business Finance · Construction and features of company accounts and reports

An auditor concludes that the financial statements are free from material misstatement except for one item, inventory valued at cost where net realisable value is clearly lower. The effect is material but not pervasive. Which audit opinion is appropriate?

A qualified 'except for' opinion is appropriate. The inventory overstatement is material but not pervasive, so the accounts are otherwise fair. An adverse opinion would require pervasive misstatement, and an emphasis of matter cannot be used to avoid modifying the opinion for a known misstatement.

  1. AUnmodified opinion with an emphasis of matter paragraph
  2. BAdverse opinion
  3. CDisclaimer of opinion
  4. DQualified opinion ('except for')Correct
  5. Unmodified opinion with no further comment

Explanation

A material misstatement that is not pervasive leads to a qualified 'except for' opinion. An adverse opinion is for material and pervasive misstatements. A disclaimer applies when the auditor cannot obtain sufficient evidence. An emphasis of matter paragraph does not change an unmodified opinion and cannot cure a known misstatement.

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